Summer School | Keynote Lecture Brief of Gene Grossman

Keynote Lecture Brief

Speaker: Gene Grossman (Professor of the Department of Economics at Princeton University)

Topic: Trade, Growth and Inequality

Prof. Grossman’s lecture featured how trade and growth affected income distribution, and how they affected wage distribution with worker heterogeneity in particular. Prof. Grossman presented two of his recent research on this topic.

Traditional literature focused on a few aggregates, assumed homogeneous. Prof. Grossman painted a richer picture with new data sets. The paper provided a framework for thinking about the effect of trade on within-industry-and-occupation wage distributions. The paper extended the Heckscher-Ohlin model to include heterogeneous factors and complementarities between factor types. First, he showed a few motivating observations in this research. Then, he constructed a model in a Heckscher-Ohlin economy with two heterogeneous factors—labor and manager. Major findings of the paper include: Between industries, trade favors export industries with comparative advantages than import-competing industry. Between occupations, trade favors factors used more intensively (in quantity) in the export industry. Within occupation and industry, when matching improves for a factor in a sector, trade benefits the more able types in the sector, thereby spreading the within occupation-and-industry income distribution.

The other paper provided a theoretical exploration of the link between the growth process and income distribution in closed and open economies. In this paper, firm and worker heterogeneity is introduced into an innovation-driven endogenous growth model. Individuals who differ in ability are sorted into either a research sector or a manufacturing sector. Each research project generates a new variety of the differentiated product and a random technology for producing it.

Technologies differ in complexity and productivity, and technological sophistication is complementary to worker ability. The paper finds that international integration affords research access to larger knowledge stock, and  accelerates innovation and growth. And expansion of idea-generating sector generates ubiquitous increase in wage inequality. Technological conditions and government policies typically have spillover effects abroad. 

Please stay tuned for the series of stories on the 4th New Structural Economics Summer School in forthcoming days!

Notice: 

Collated by Xiaomeng Ren, CNSE

Without proofreading by the Speaker

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